First sells American operations
FirstGroup’s shares rose dramatically this morning (23 April) as it was announced the transport giant has entered into an agreement to sell its First Student and First Transit operations in the US to EQT Infrastructure for £3.3bn ($4.6bn).
First’s Board formally announced the commencement of a sale process for the Group’s North American contract businesses in March 2020 in order to unlock value and focus on its UK bus and rail divisions.
First Student is the largest provider of student transportation in North America, while First Transit is one of the largest private sector providers of public transit management and contracting services in North America.
FirstGroup is still looking to sell the iconic Greyhound operation in North America. Sale discussions are ongoing but the process has been affected by the pandemic’s impact on this passenger volume-based business.
“This transaction…enables FirstGroup to address its long-standing liabilities, make a substantial contribution to its UK Bus and Group pension schemes and return value to shareholders” – David Martin, FirstGroup Chairman
David Martin, FirstGroup Chairman, said: “This transaction, which follows a strategic review by the Board of all options to unlock value, enables FirstGroup to address its long-standing liabilities, make a substantial contribution to its UK Bus and Group pension schemes and return value to shareholders, while ensuring the ongoing business has the appropriate financial strength and flexibility to deliver on its goals.”
The £2,190m initial net proceeds of the sale of its North American operations are to be used in addressing long-standing liabilities, ensuring the Group has sufficient means for the future development of its retained businesses and enabling a return of value to shareholders. A statement from FirstGroup said £1,345m is to be used to reduce indebtedness (including £300m CCFF repayment to UK Government) and to de-risk other liabilities (including for North American legacy pensions and self-insurance). There will also be a £336m contribution to the UK Bus and Group pension schemes (of which £116m to be held in escrow), which the Group says will enable a move to a low dependency funding position.
The transaction is subject to FirstGroup shareholder approval, with the sale expected to be completed in the second half of this year.
A statement from the Group said the company expects adjusted operating profit for the 2021 financial year to be ahead of management’s previous expectations.
“Going forward, FirstGroup will be a more focused, resilient business that is in a strong position to deliver for bus and rail passengers in the UK” – Matthew Gregory, FirstGroup Chief Executive
Matthew Gregory, FirstGroup Chief Executive, said: “As economies begin to emerge from the pandemic restrictions and society begins the process of building back better, the vital role of public transport is clear. The services we provide are critical to economic activity and social objectives including ‘levelling up’, and play an important role in combating climate change and helping local communities flourish. Going forward, FirstGroup will be a more focused, resilient business that is in a strong position to deliver for bus and rail passengers in the UK, continue investing in its zero-emissions fleet strategy and play a key role in meeting society’s broader ESG goals.”